When I first wrote that some investors will make millions in marijuana but many more will lose their shirt, investors had difficulty understanding.

After all, many thought that if marijuana was going to be big, all they had to do was buy a couple of stocks and hold them forever. Now that many investors have experienced volatility in marijuana stocks, and I have published a large number of successful marijuana trades, investors who were previously criticizing me are beginning to understand that it takes knowledge, skill and the proper mindset to make money in marijuana stocks.

When I wrote “How to potentially become a marijuana millionaire, albeit carefully,” the most important word in the headline was “carefully.” Let us explore with the help of a chart as to how a previous “don’t touch” marijuana stock became a buy.

Chart

• The chart shows when the Arora buy signal was given. Using the Arora Trade Management Guidelines, the average buy price was $4.21. Hindsight shows that the buy signal was given close to the bottom.

• The position now has a 60% gain in a short time.

• The chart shows that during the time when there was a lot of bullishness about Aphria, it was a don’t-touch stock, per the six screens of the ZYX Change Method.

• When rumors surfaced that Marlboro maker Altria

MO, -1.61%

would buy Aphria, The Arora Report made a specific call. The call was to not buy Aphria on the rumors. At that time I received many emails questioning that call, especially since The Arora Report is well-known for buying companies that eventually get bought out. To date, 144 of our portfolio companies have been acquired, producing large gains. Please see “Here’s an evergreen strategy to make money in a volatile stock market.”

• Interestingly, The Arora Report made a call to buy marijuana stock Cronos

CRON, +0.62%

just before it received a major investment from cigarette maker Altria. This call produced large gains in a very short time.

• The chart shows that a short-seller report about fraud at Aphria caused the stock to plunge, ultimately providing a buying opportunity.

• The chart shows that, at the time of the Arora buy signal, sentiment on Aphria had turned extremely negative. Sentiment, at extremes, is a contrary signal. In plain English, this means buy when everybody else turns negative.

• The chart shows that at the time of Arora buy signal, RSI (relative strength indicator) was oversold. In contrast, RSI is now overbought.

• The chart shows that at the time of The Arora Report buy signal, RSI was showing a positive divergence. In contrast, RSI is now showing a negative divergence.

• The chart shows that at the time of the Arora buy signal, volume was very heavy. This indicated that the bottom was most likely in.

• The chart shows a hostile bid by Green Growth Brands

GGBXF, +3.85%

The foregoing highlights that Aphria should be bought on a dip into the buy zone. Consider not buying it right here after this run-up. As full disclosure, The Arora Report is taking partial profits to take advantage of this strength. The plan is to either add to the position or start a trade-around position when Aphria dips into the buy zone.

If you could buy only one marijuana stock

The fact that I am highlighting Aphria does not change the prior recommendation that Canopy Growth

CGC, +11.76%

should be the core marijuana position. Please click here to see an annotated chart of Canopy Growth. For the sake of full transparency, no changes have been made to this previously published chart. Please see “If you buy only one marijuana stock, this should be it.”

As of this writing, Canopy Growth is experiencing a massive short squeeze, according to the algorithms at The Arora Report. In a short squeeze, investors who previously sold short are either forced to buy to cover their shorts or feel compelled to buy to cover at higher (and higher) prices. Such buying is artificial buying and not real buying based on fundamentals. In the stock market, there are not many things we know with certainty. However, we know with certainty that short squeezes eventually end. When they end, the stock falls. Please see the article on short squeezes in the list below.

Sell (or avoid) the darling

Tilray

TLRY, +0.88%

has been the darling of marijuana investors. As full disclosure, The Arora Report call is to take advantage of the strength to take profits or partial profits depending on the type of investor. We provide guidance for different types of investors.

Even though there is fair probability of Tilray running higher on a potential short squeeze, it is prudent to take profits into this strength because an option lockup is expiring on Jan. 15. Tilray came public with a small float, which has been the root cause of various run-ups in Tilray stock due to short squeezes. After the lockup expiration, there may be selling pressure over a prolonged period and short squeezes may not be as pronounced.

Gain an edge

Segmented money flows have an excellent record in giving investors an edge in all kinds of stocks, not only marijuana stocks. I do credit segmented money flows, in large part, to The Arora Report success in calling moves in various marijuana stocks. To learn about segmented money flows, please see “How ‘peak good news’ for marijuana stocks may undermine investors.” Please click here for a previously published chart of segmented money flows on 15 marijuana stocks including Aurora Cannabis

ACB, +8.99%

New Age Beverages

NBEV, -0.98%

Constellation Brands

STZ, +5.96%

and marijuana ETF

MJ, +2.07%

Please also read:

To invest successfully in marijuana stocks, avoid this one thing

How to survive marijuana stocks’ rollercoaster ride

Seven reasons Big Tobacco is likely to make a move on the marijuana industry

Tilray is the poster boy of short-squeeze stock candidates — here’s how to find others

Marijuana beverages are the new thing, but investors should only take sips

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com